Initiate with a BUY rating on Weichai Power’s new perpetual note

Weichai Power issues USD 775 m subordinated perpetual securities.

Nam Cheong holds investor meet to discuss restructuring.

Adding Weichai’s new 3.75% perpetual to BUY recommendation list

Weichai Power (WEICHA, NR/BBB-/BBB, CS fundamental credit view: Stable) has issued USD 775 m 3.75% perpetual callable in 2022 (XS1679350014). If the perpetual is not called in 2022, the coupon will be revised to the prevailing 5Y UST + 6.084%. We have initiated coverage and added this perpetual security to our Emerging Market Bond list with a BUY recommendation. Weichai Power is one of the largest automobile and equipment manufacturing companies in China, and holds 43% of Germany’s KION.

Nam Cheong provides detailed restructuring proposals

Nam Cheong (NCL SP, undergoing restructuring) held another investor meeting on Thursday. Nam Cheong reported a total debt of USD 424 m (USD 88 m secured). Under the proposed restructuring, secured assets will be sold and the sale proceeds will be used to repay secured lenders. Portion of debt not covered by asset sale to be considered as unsecured debt. Nam Cheong’s proposal for the unsecured lenders include: 1) 35% of the debt to be converted to NCL shares with a ratio of 1:17 (USD 1 of debt to 17 NCL shares), 2) 65% of the debt to be exchanged to a new seven-year term loan with 4% coupon per annum. Half of the coupon (2% annual) is to be paid in cash as and when due while the other half to be converted to shares at the end of each year. The term loan will be subject to a principal moratorium of three years with proposed repayments from year four onward (10%, 20%, 30%, 40%) on half-yearly basis. A cash sweep mechanism is in place to replay excess cash generated by the business from the fourth year. Nam Cheong’s has proposed an early exit option for unsecured lenders. The proposals include option A) Cash out. The recovery value of the cash out option would depend on the participation rate. Option B) Immediate conversion to NCL shares at a ratio of USD 1 debt to 34 NCL shares. The final proposal will be presented before the court and later to noteholders for approval. The plan will be then implemented through the Scheme of Arrangement (SoA), timelines of which were not disclosed by the Management. Investors who are not willing to participate may consider taking the early exit route as and when the plan is approved. Other investors may convert the debt into equity as per the terms approved and hope for a higher recovery of their investments. We shall report on the restructuring plan and provide update as and when new information comes to light. Please note that the continued absence of secondary market liquidity makes it difficult for investors to exit/reduce their exposure.